THIS MONTH’S TOPIC: MAKING THE MOST OF TAX BENEFITS

WHY IT MATTERS WHICH PRODUCT(S) YOU INVEST IN

While it’s fairly easy to open an investment, it’s not always that easy to pick the correct investment vehicle that meets your financial goals. Some products may seem like a very attractive investment on face-value, but when taking the tax-implications into consideration, the real return on investment is not that great.

For example, saving for your child’s tertiary education over 12 years in a regular savings account. Yes, the money is easily accessible, and you will get steady growth, but the implication comes in when the funds start growing cumulatively a few years down the line and you have to start paying interest income tax.

The exemption per individual under 65 is R23 800. Once you start earning interest over this amount, it will be included in your annual income tax return.

If you compare this to a tax-free investment, you will be able to achieve a similar goal, without the tax implication as there is no interest income tax, dividends tax or capital gains tax applicable in this investment. There are however restrictions to keep in mind which is a maximum annual contribution of R36 000 and a lifetime contribution of R500 000. This does not mean that your investment can only grow to these limits, it just means that you cannot contribute more than these limits. The funds are also easily accessible, but you must keep in mind that whatever you withdraw cannot be replaced once you’ve reached your annual or lifetime limit.

For those who have existing tax-free investments, make sure you utilise the full annual contribution limit before the end of February every year.

When it comes to saving for retirement, you can also utilise the full contribution benefit which is 27.5% of your total taxable income with a maximum of R350 000 per annum. If you contributed more than this amount, it would roll over to the next financial year.

SLIDE OF THE MONTH: RETIREMENT ANNUITY (RA) vs DISCRETIONARY INVESTMENT

Let’s assume an investor is faced with two investments that earn 9% per annum over the next 10 years. One investment is a Retirement Annuity, and the other investment is a discretionary investment portfolio. The investor is taxed at 45% and wants to contribute R350 000 to the investment each year. Any tax refund the investor receives is invested at 9% at the beginning of the following year.

The compounded benefit of the tax deduction means that an investor would earn R2 392 886.43 more investing in an RA.

TO CONCLUDE

We, at FC Wealth and Investments, are passionate about financial control, helping our clients to get control over their financial matters, keep control, understand their spending and to build lifelong wealth in the process.

We would like to invite you, to make us part of your financial journey, in good and in challenging times and every life changing event in between. Feel free to call us, or to book a physical or online meeting. We are here for you.

Wealth regards,

Fanie Jansen Van Vuuren CA (SA), CFP?

Director:?FC Wealth and Investments (Pty) Ltd

E:?[email protected]

W:?www.fcfin.co.za